Typically the syndicated loans market takes some time to gain momentum in January, but this year has been unusually slow.
The market remains high liquid. Yet uncertainty in European markets, lower global growth prospects, low commodity prices and an expected hike in US interest rates around mid-year are causing market participants to proceed with caution. Those factors are also dampening activity in mergers and acquisitions – which is in turn driving less lending activity than might be expected.
Brazil’s situation is also causing lenders to tread carefully. The South American country’s 2015 economic growth forecast have been slashed, and expectations are now that it will enter recession this year. The lowered expectations coincide with major investigations into corruption allegations at Brazil’s state-owned energy Petrobras. The scandal has impeded financing for the oil company and several of its contractors, including OAS.
Nonetheless, in January more than a dozen bank submitted proposals to syndicate a $700m loan for Brazil’s Raízen Energia. The loan was the first big deal of the year and attracted banks ready to put their new budgets to work.
Market talk suggested the borrower was discussing paying as little as 100bp over Libor for the possible five-year dual-tranche deal, a level said to be very tight for the borrower. Pricing emerged higher at 120bp over Libor, which was still described as aggressive. Syndication on the deal is set to begin in March.
Brazil’s troubles go on, though. A severe drought, which has been called the worst in Brazil history, has wreaked havoc on agricultural producers and communities, causing water cuts and blackouts. Brazilian sugar producer Usina de Açucar Santa Terezinha was heard to be preparing to close documentation for a $150m loan in mid-February. The four-year pre-export term loan paid 390bp over Libor, LatinFinance heard. That was slightly above the 340bp over Libor the company paid in March 2014 for a $180m pre-export loan with the same tenor.
Despite low oil prices, companies in the industry have taken some of the largest loans this year. That suggests banks are still happy to lend to companies with strong credit profiles despite the dive in the price of the commodity.
Colombia’s Canacol Energy Company was seeking syndication for a $200m loan in late February. The deal follows a deal for Colombia’s state-owned oil company Ecopetrol, which closed a $1.92bn club deal in February with eight banks. The five-year, term loan paid 140bp over Libor.
Investors and companies had thought 2015 would offer the beginning of a deal boom in the oil and gas industry in Mexico, which passed legislation to allow joint ventures between Mexican and international companies in August. The fall in the oil price is causing analysts to revise their forecasts on the speed at which investors will come into opportunities created by the energy reform.
Yet the lending proceeds. In February, Pemex, the government’s state-owned energy company, closed a $5.25bn, triple-tranche loan it had entered syndication for in December. More than 20 banks participated in the credit, which was finalized just as Pemex’ cut its budget by more than 11% because of lower oil prices and weaker-than-expected revenues. LF